2018.08.0307:15:00UTC+00UK Services Activity Expands At Slowest Pace In 3 Months

British service sector grew at the weakest pace in three months as greater risk aversion in response to Brexit uncertainty held back new business growth in July, survey data from IHS Markit showed Friday.

The IHS Markit/Chartered Institute of Procurement & Supply Purchasing Managers' Index dropped more-than-expected to 53.5 in July from 55.1 in June.

The reading was forecast to fall to 54.7. However, any reading above 50 indicates expansion in the sector.

The survey marked two years of sustained new business growth across the service sector economy. Nonetheless, the pace of new business growth slowed due to delayed decision-making and risk aversion amid Brexit uncertainty.

Service providers raised their employment levels in July but at the weakest rate for almost two years amid tight labor market conditions. Some firms cited long-term plans to automate business processes for reduced hiring.

On the price front, latest data indicated that input cost pressures eased from the nine-month high seen in June, but remained strong in a historical context.

Average prices charged by service providers increased at a solid pace, although the latest rise was weaker than the trend seen so far in 2018. Some firms noted that intense competition for new work had restricted their ability to pass on higher costs to clients.

The combination of slower output growth and softer price pressures during July will reinforce expectations that any further Bank of England rate rises will be both gradual and limited, Tim Moore, Associate Director at IHS Markit, said.

If growth could surprise to the upside, the BoE may have to tighten monetary policy by more than the single hike a year that the Governor has suggested is a "good rule of thumb" following the rise in Bank Rate to 0.75 percent yesterday, Andrew Wishart, an economist at Capital Economics, said.